4/21/17

Should Comcast Merge With Charter Or Verizon? Analyst Says Yes

In much the way that fans of celebrities enjoy chatting about how great two stars would be together, financial analysts daydream about multibillion-dollar corporate weddings. The current pro-business, anti-regulation mindset in D.C. is only fueling those romantic merger fantasies, with one high-profile analyst claiming that now is the perfect time for Comcast to gets its acquisition on.

Financial services and analysis company BTIG has released a new report pondering a few reasons why it thinks Comcast is primed to go on a buying spree.

First, there’s personality: Comcast CEO Brian Roberts is fairly young, likely to stay in charge for at least a decade or two, and is much more likely to want to make Comcast bigger than to sell it, BTIG concludes.

Second, there’s technological reality: We are nowhere near an all-wireless, all-mobile environment now, but give it 20 years and… well, we still might not be there, but we’ll be pretty close. Comcast has a lot of valuable wires, but not exactly a robust wireless business (small steps into mobile aside). For long-term survival in the increasingly air-based future, it’s going to need either to spend a ton of money shifting gears, or simply to buy up someone else.

And third, there’s timing: While nothing is set in stone, it’s incredibly likely that the current leadership at both the FCC and the Justice Department will be much more mega-merger friendly than either was during the Obama administration, or than either would be during a hypothetical future Democratic administration years down the line. On top of that, the new FCC chair is deregulation-happy, pulling back on potential speed bumps for corporations — like ISP privacy and possibly even et neutrality — wherever he can.

That answers the “why,” then… but what about the “who?” BTIG has six suggestions, spanning the gamut from new and scrappy to ancient and entrenched. Their suggestions are: Snapchat, T-Mobile, Netflix, Disney, Verizon, and Charter.

Snapchat probably won’t be interested in a sale, BTIG notes, putting pretty long odds on that idea.

Netflix, too, has long odds on it. Comcast can afford it, and desperately needs a brand people like, rather than hate, in its portfolio. Regulatorily speaking, there’s no clear reason to block it as long as Comcast first sells off its 30% share in Hulu. But Netflix, the analysts note, is probably disinterested at best in a stock transaction, which probably makes that a no-go, too.

On the other end of content, Disney’s a little tricker. Comcast tried and failed to buy out the House of Mouse once before, and the media landscape world has changed since then. Since Comcast already includes NBCUniversal, getting a Disney purchase through regulators could involve a lot of slicing, dicing, divestment, and conditions Comcast might not want or be able to make.

T-Mobile, on the other hand, seems like such a likely acquisition target to BTIG (and others) that they’re a little surprised it hasn’t happened before. This, too, would be unlikely to be stalled by regulators, BTIG notes.

That leaves us with two real biggies: Verizon and Charter.

Verizon has already expressed interest in potential talks with Comcast. “Imagine a Comcast merfer of equals essentially with Verizon to create the largest broadband provider in the US spanning wired and wireless,” BTIG suggests. Regulatory approval could probably actually be arranged, the analysts speculate, but “imagine the outrage” from all the same folks who fought Comcast/Time Warner Cable (like us).

That leaves Charter, an “opportunity that simply feels too compelling for Comcast to ignore,” BTIG speculates. Would even the current FCC and DOJ really be willing to let the no. 1 and no. 2 cable/broadband providers in the whole nation merge into one 55-million-customer, coast-to-coast, unbeatable juggernaut?

As BTIG dryly notes, “While the regulatory hurdles are clearly lower under President Trump, we suspect Comcast would still face a massive backlash from consumers, broadcast/cable network programmers and technology companies who would fear Comcast’s notably increased broadband power and associated monopsony risk.” Even so, though, analysts think that the rewards could be big enough to make the attempt worth the risk.